Weaker euro causes UK bank deposit protection to fall to £75,000

The pound sterling against the euro is trading at one of its highest levels since the introduction of the eurozone currencyiStock

The Bank of England announced that its Prudential Regulation Authority will decrease the amount of money from bank deposits protected under a compensation scheme will be lowered to £75,000 ($117,020) from £85,000 in 2016.

The Financial Services Compensation Scheme is based on an amount of €100,000, so the protected amount individuals and companies have deposited to banks in the UK decreased because of the strong pound.

The EU Deposit Guarantee Directive, which determines the FSCS, based the new regulation on the position of the pound on 3 July. The PRA also announced it would extend deposit protection to categories that did not enjoy protection in the past, such as big corporations.

Conservative MP Andrew Tyrie slammed the new regulation in a comment. He said: "It is absurd that the 16% depreciation of the euro largely brought about by the crisis in the eurozone in general, and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors.

"It makes no sense to fix deposit guarantees, which need to be stable to win public confidence and which should be providing certainty and predictability for ordinary savers, to a volatile variable like the exchange rate."

Tyrie also said those countries, such as the UK, Denmark and Sweden, which are not in the eurozone but are still EU member states, were not taken into consideration when the regulation was adjusted.

"By one means or another, the [EU Deposit Guarantee] Directive needs to be injected with a dose of common sense," he said.

The pound is currently trading at €1.40, close to its high in January 2007, when it was at €1.52. The lowest point it has reached was in December 2008 when the pound traded at approximately €1.06.